Main Street or Wall Street when Choosing a Localization Vendor

Balancing size vs serviceThe largest public localization company, Lionbridge, reported last week below expectations net earnings and recently lost a third of its market capitalization.

In a drive to become the number one localization vendor, Lionbridge grew since its IPO by buying companies like Bowne Global Solutions, International Communications, Mentorix and Data Dimensions. They financed their expansions with public money.

To retain their newly bought clients and aggressive revenue growth projections, Lionbridge consistently spent millions of dollars every year on sales and marketing. This was incremented by the significant administrative costs required to operate a public company, heavily dependent on public financing. The combined costs (26% of revenue) cut deep into profit margins and return to investors. New business continues to stream in but at the expense of profitability.

Looking at their financial performance over eight years in public life, one cannot avoid detecting so far a failed struggle to streamline divisions, create efficiencies and reduce costs– tasks not easily accomplished in a service industry heavily dependent on a global labor force costing 65 cents for each earned dollar.

This leaves them with 9 cents on the dollar to cover R&D, depreciation & amortization, interest, restructuring costs, employee stock compensation and yes, the elusive profit as well.

While this Wall Street company enjoyed fast revenue growth, Main Street companies labored for long term viability and healthy margins. Without access to public funds, they cannot spend liberally on administrative expenditures, marketing, sales or acquisitions. They focus instead on building solid business processes generating sustainable margins permitting them to invest in organic growth, thus ensuring their clients’ long term success and retention.

Chasing market share is a virtue and remains at the heart of our capitalistic society. But successful businesses must work toward sustainable profitability, not just sustainable market growth.

Next time you need a localization vendor, take a stroll down Main Street and try to balance size vs. service; the gems you stumble on will surprise you!

Download – How to Plan and Budget for Localization Projects?

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